| CAREERS NOW 03-16-08 |
| Red Flags on Private Student Loans |
DEAR JOYCE: My daughter-in-law is talking about enrolling in a private career
school with costs totaling over $30,000 before she's ready to get a job with her training. She wants us to co-sign
a loan, one recommended by the school. I have my doubts but don't want to cause a rift in our relationship. Have
you written about taking out a substantial loan to pay for job training? - No Initials Please
Addressing only the loan aspects of your question (not the health of the job market that your daughter-in-law would
enter), the first thing to determine is whether the school-recommended loan is federally insured or privately provided.
Federally insured student loans offer the borrower a range of protections and remedies not found in private uninsured
student loans.
Amid growing speculation by financial aid specialists that the private student-loan industry is beginning to look
as disturbing as the subprime mortgage industry comes news that students and co-signers are getting a double whammy
when schools fail: Lenders expect them to repay private loans even when a school goes bankrupt, and the student
is unable to complete the pricey training program.
A recent story in the San Diego Union-Tribune illustrates the problem. It describes the plight of Hector Leon,
who enrolled in a helicopter flight school offered by Nevada-based Silver State Helicopters. The flight school
required the nearly $70,000 tuition up front, arranging a private student loan for the full amount, with payments
deferred until six months after graduation. The school's ads claimed graduates could make more than $150,000 a
year, according to Leon.
The nightmare for Leon and some 2,500 other Silver State students nationwide began with the news in February that
Silver State had been caught in the credit crunch. The school closed its doors and filed for bankruptcy, creating
the twin torment for students of no diploma and no debt relief. Although most people who find themselves in this
double-bind are hard pressed to recover, small windows of hope remain, which are described in the Union Tribune
story (browse on Google for "Left in the Lurch" By Bruce V. Bigelow).
If you decide to help out your daughter-in-law, first arm yourself with enough knowledge to avoid a school bankruptcy/predatory
loan mess. Here's a great resource to do that: The nonprofit National Consumer Law Center in Boston has just published
a stunning study spelling out the risks of non-federally-backed student loans, "Paying the Price: The High
Cost of Private Student Loans and the Dangers for Student Borrowers" (nclc.org).
Although you've asked about an institution in the proprietary vocational-technical school market, the risks described
by the NCLC study apply to borrowers for colleges and universities as well as to private career schools. The Web
site helpfully includes links to additional consumer information on the topic. If you don't read the entire study,
don't miss its 10-page executive summary - a real eye opener about what's going on in educational lending today.
Among its statements:
"Private student loans are made by lenders to students and families outside of the federal student loan program.
They are not subsidized or insured by the federal government and may be provided by banks, non-profits or other
financial institutions... Private loans now comprise about 24 percent of the nation's total education loan volume."
Wow! How did we get to the one-quarter mark from a loan source that once was used mainly by graduate students?
"It all helps unmask the larger problem, which is that students are having trouble affording the cost of education,"
Deanne Loonin, NCLC staff attorney and principal author of the private student loan study, told the Union=Tribune.
"We've masked that problem by throwing all these predatory loans at them."
Two more helpful Web sites about educational borrowing: ProjectonStudentDebt.org,
and FinAid.com.
As I've said in earlier columns, crushing education debts can dog borrowers for years, creating a generation of
loan-weary graduates. If you default on the loans, credit reports can throw a stink bomb in your career. Look on
my Web site (sunfeatures.com) for two columns last year: "Indentured
Graduates: What Now?" and "Heads Up Before Paying For New Career Training."
Email Joyce
Sorry, the volume of mail makes personal replies impossible.